Our description of a trust is a fiduciary arrangement where you entrust the management of assets to a third party on behalf of one or more beneficiaries. The simplest and most frequent type of trust is a revocable living trust.
A trust is a legal document that specifies how different assets will be handled. The grantor or settlor is the person who establishes the trust and appoints a trustee to manage and distribute the trust assets in accordance with the trust’s conditions. Beneficiaries are whom gain access to the trust’s assets. When you die, your assets (these trust assets) are divided according to the terms of your revocable living trust.
Your assets will not pass to your heirs without going through a court procedure known as probate (which may be time-consuming, costly, and uncertain, not to mention open to the public to see) if you never create a trust. Unless you have a trust, your estate will have to go through probate in order to distribute your assets even if you have a will created.
Because the trust is revocable, you can modify it after it has been established (see irrevocable trusts) while also moving assets into and out of the trust, amending the trust’s terms, and even canceling it.
Establishing a revocable living trust can also aid in keeping spousal property separate during marriage, and often includes power-of-attorney provisions for medical decisions.
A revocable living trust, which commonly includes power-of-attorney provisions for medical decisions, can also help keep spousal property separate during marriage. Although there are various benefits to creating a revocable living trust, there are a few things it does not do:
- They don’t provide many (if any at all) tax benefits
- They don’t control any assets that aren’t properly titled in the name of the trust;
- They don’t protect your assets inside the trust from creditors.
- They do not take the place of the requirement for a strong will (which explains why a will is created at the same time as a trust)
Revocable living trusts are simple to set up and provide some comfort for those with smaller estates and no creditors on the horizon while they would be the start of a comprehensive estate plan for persons with higher-value estates.